Merck & Co., Inc. (MRK) Presents at Jefferies London Healthcare Convention (Transcript)

Merck & Co., Inc. (NYSE:MRK) Jefferies London Healthcare Convention November 16, 2023 5:00 AM ET

Firm Individuals

Caroline Litchfield – Chief Monetary Officer

Peter Dannenbaum – Head of Investor Relations

Convention Name Individuals

Akash Tewari – Jefferies

Akash Tewari

All proper, good morning, day three of our London Healthcare Convention. It has been a blast to see everybody right here, actually do recognize it. Becoming a member of us — and my identify is Akash Tewari. I am a pharma and biotech analyst, right here at Jefferies. Becoming a member of me right now is Merck, which is our high decide in giant cap pharma. And becoming a member of us is Caroline Litchfield and Peter Dannenbaum, Head of IR. Caroline is CFO. Actually, actually recognize on the time. And Caroline instructed me she flew over simply to hang around with all of us right now, so actually recognize it.

Possibly I can hand it to you for some transient introductory remarks, then we will get into questions.

Caroline Litchfield

Sure. So, first, are you able to hear me okay? First, thanks for having us, and thanks, all, for becoming a member of for this fireplace chat. It is a actually particular time at Merck. As an organization, we have nice momentum in our enterprise. We’re driving important affected person and buyer affect throughout oncology, throughout vaccines, throughout animal well being. And we count on that momentum to allow us to proceed to drive progress and affect into 2024. We’re progressing our pipeline actually with our personal inner property, in addition to augmenting that pipeline with very financially disciplined, scientifically targeted enterprise improvement.

So, as we take a look at the longer term, we’re assured within the long-term outlook for our firm to drive affected person affect, which in flip will drive income, which in flip will drive progress lengthy into the longer term.

Query-and-Reply Session

Q – Akash Tewari

Understood. So, I’ll begin with — I believe the query, and I am positive you get this on a regular basis, is you are an organization with wonderful progress over the following 5 years, after which a possible patent cliff with KEYTRUDA going off. And also you type of look into historical past, proper? I nonetheless keep in mind when you may argue AbbVie has been certainly one of the few corporations the place they’ve really been in a position to efficiently navigate out of a really important patent cliff with HUMIRA. And there have been two issues that I believe stood out in regards to the AbbVie technique, proper? One was they put out steerage that nobody believed. I nonetheless keep in mind once they gave that preliminary steerage, and folks have been like, “Oh wow, SKYRIZI goes to be that large; give me a break.”

And so they actually have been in a position to type of execute. So, giving that kind of daring imaginative and prescient about progress was one factor that AbbVie did. And the opposite was they did a “large deal,” proper, to type of easy your income curves. Whenever you take a look at what AbbVie did and the success that they had, and also you apply it to the place you’re with Merck, and all of the success you’ve got had with KEYTRUDA, a, is there urge for food to be possibly extra clear about your progress profile, submit 2028, in KEYTRUDA? That type of daring, “Imagine us, we’re going to have the ability to do that,” when it comes to adopting that kind of communication?

After which quantity two, do you’re feeling like possibly there’s room to do a big cap kind of deal, a transaction the place you are in a position to give visibility on revenues in a method that possibly assures buyers?

Caroline Litchfield

So, our firm is a science-led firm. Our aim is to carry breakthrough medicines and vaccines to this world to essentially advance human and animal well being, and drive progress for our firm. Executing that technique, we now have progressed our inner pipeline and augmented that pipeline with enterprise improvement. And as we glance out to the long-term, we have given steerage round totally different areas of our enterprise and the chance to drive important income and progress for our firm. That steerage included the expectation that our cardiovascular merchandise, that embrace sotatercept, embrace the oral PCSK9, embrace different compounds could have revenues of larger than $10 billion within the 2030s.

And our confidence in that steerage is way increased right now than it was after we gave the preliminary steerage. We have additionally said that we’ll proceed to take a position and broaden the oncology choices that we now have. And we now have many alternatives to drive important affected person profit with our precision molecular merchandise that we now have, in addition to with the ADCs. And once more, we indicated that we believed these small molecules and preliminary ADCs, in collaboration with Kelun, might drive $10 billion of income within the mid 2030s. And on high of that, we now have the collaboration with Moderna for the individualized neoantigen remedy, in addition to the just lately introduced collaboration with Daiichi Sankyo with multi-billion greenback asset potential throughout three totally different ADCs.

And on high of that, we now have immunology enterprise with the acquisition of Prometheus and the TL1A candidate, which has multi-billion greenback potential in ulcerative colitis, and multi-billion greenback potential in Crohn’s illness. So, our firm has been giving steerage in numerous therapeutic areas to allow our buyers to grasp the expansion alternative for the longer term. And for our firm to try to ship progress we aspire to ship progress by way of the KEYTRUDA lack of exclusivity, at a minimal, we glance to attenuate any lack of income for the entire firm and rapidly return to progress. Our technique of doing that’s to put money into R&D, and that can be each organically and inorganically.

Our enterprise improvement technique is to hunt one of the best science that, in our fingers, we will drive worth for sufferers, drive worth for our shareholders. And the place the science and the worth align we’ll transact, as you’ve got seen us do. So, we’re assured in our future. And we’ll maintain signposting for our buyers the alternatives which are in entrance of us.

Akash Tewari

Understood. And that is actually attention-grabbing as effectively. I believe the way in which that many of the Road fashions Merck, it is you get to 2028, you get to wonderful income base, there could be a little bit of a decline, however then type of flat on a go-forward foundation. So, you’re feeling like this might really be a consolidation 12 months, after which one thing that truly returns to progress, long-term. In the event you have been to take a look at the way in which that the Road fashions a few of your current acquisitions, a few of your pipeline, the place do you’re feeling like your inner workforce and your confidence differs versus what possibly analysts have? And are there any merchandise specifically that you simply actually need to spotlight that we ought to be doing extra work on?

Caroline Litchfield

So, I believe I’ve simply laid out a few of these long run areas.

Akash Tewari

Sure.

Caroline Litchfield

I ought to notice, on high of the alternatives in oncology, in cardiovascular, in immunology, we even have a really robust vaccines enterprise that we count on sustainable progress over the long-term. And we now have a robust animal well being enterprise that we count on robust progress over the long term. As we take a look at the shorter time period and the place the Road analysts might not be absolutely valuing the alternatives in entrance of us, there’s two property that I might level to. First is sotatercept. Sotatercept is a major product to assist with pulmonary arterial hypertension. We’ll launch the product, topic to FDA approval, early subsequent 12 months in america. We have submitted the submitting to the European company, and hope for launch within the second-half of 2024. Given the profound affect that sotatercept had within the STELLAR research, we count on a really robust launch, and to help many sufferers with pulmonary arterial hypertension.

One other space that we expect has important alternative is our adult-focused pneumococcal vaccine, V116. This vaccine will present safety and protection for adults of 85% of the serotypes that affect adults with pneumococcal illness; a lot better than some other product on the market right now or some other product that’s in improvement right now. So, we consider this can be a major development and a driver of income for the corporate.

Akash Tewari

Perceive. And, by the way in which, you’re undoubtedly preaching to the choir. I believe Acceleron might have gotten acquired at one-time peak gross sales, however that’s simply me. However to the purpose, this is not — you guys have been speaking in regards to the warehousing of sufferers, the uptick that you will see on sotatercept. The query my workforce and I type of internally have given 84% profit on scientific worsening. That’s effectively tied to mortality. If I used to be a health care provider treating PAH sufferers, proper, 50% of those ladies die inside 5 years. 30% of them die inside a 12 months. How is that this not a frontline induction remedy out of the gate, proper, like why look forward to these sufferers to go to Class II or Class III? So, since you take a look at a few of your PULSAR datasets, it looks like sotatercept, specifically, has a profit in these sooner progressing sufferers. So, while you speak in regards to the warehousing of sufferers that you simply’re seeing proper now, are these simply Class II, Class III sufferers, or are these sufferers who’re additionally earlier in the usual of care who actually need to get a chance to get on sotatercept?

Caroline Litchfield

So, the STELLAR research, which is what we’re looking for for approval for sotatercept, targeted on sufferers later of their journey with PAH. Certainly, the common timeline {that a} affected person had been coping with the illness was, I believe, 5 years within the research. So, the approval we’re anticipating is as an add-on to the present therapies. And docs are attempting to assist these sufferers at this stage. What they’re doing is figuring out these sufferers that they will rapidly add on sotatercept to have significant profit, and to cease the type of mortality that you’ve got simply outlined.

Akash Tewari

Proper.

Caroline Litchfield

On the similar time, our firm is engaged on quite a few different scientific applications, together with a program to essentially reveal the morbidity and mortality, we have one other program that is taking a look at utilizing sotatercept earlier on in that affected person journey. And we now have one other research that is taking a look at sotatercept’s software for pulmonary hypertension. So, we’re working exhausting to try to be sure that the total worth of sotatercept could be confirmed and may due to this fact assist sufferers past these later phases you outlined.

Akash Tewari

Understood. Okay. So, to me it seems like, no it is not — the warehousing of sufferers that you’re seeing proper now, they are not earlier traces of setting, they’re in what was type of within the vendor dataset, understood. Any sense on what number of of these sufferers actually are ready to get entry to this therapy? And actually the speed of adoption, proper, I imply would not everybody type of get on this drug as quickly as — I do know it by no means works that method. However this looks like one these uncommon alternatives the place uptake could possibly be fairly fast. Can we discuss what the cadence can be in that Class II – Class III inhabitants?

Caroline Litchfield

So, the scientific leaders have shared with us their pleasure of the promise of sotatercept. They’ve shared with us that they’ve recognized sufferers that they assume can profit from this innovation. And so they have shared with us they’re able to put them on sotatercept as we get approval. So, we predict a quick adoption. As an organization, we’re guaranteeing that we’re prepared for a quick adoption. Which means we now have been targeted on our manufacturing to ensure we will provide no matter market will want. We’ve got industrial groups which are prepared to make sure that we’re educating our prospects within the applicable method. And we look ahead to simply serving to as many sufferers as we will, and seeing the income line comply with thereafter.

Akash Tewari

Okay, understood. Is smart. And possibly shifting on to GARDASIL, one other one of many merchandise you’ve got talked about might shock versus avenue expectations and the contract you’ve gotten in China definitely suggests that you’re going to have very — it’s possible you’ll very hit that 10 billion quantity that you’ve got talked about within the subsequent 12 months or two. The query I believe we get quite a bit and also you definitely see on this consensus fashions. There’s this nearly like straight line methodology of how GARDASIL will get modeled as we go into the 2030. And I believe let’s begin possibly with China which is turning into an more and more vital a part of what you are promoting. You might be having a number of the home gamers the place I do not assume the information — the scientific information can be fairly pretty much as good as GARDASIL. I do not assume that is the problem. However these are political points as effectively. And there’s additionally price dynamics at play. Once we take into consideration your confidence that GARDASIL can develop as these type of home HVP gamers enter the market in China, how ought to we take into consideration the cadence for GARDASIL ’25 and past?

Caroline Litchfield

Let me begin at excessive degree after which I am going to go into China particularly. GARDASIL is a superb vaccine that helps stop HPV-related cancers. And as such, we have seen important demand to assist shield folks all world wide. We have seen demand improve in international locations just about all world wide. And our firm has been investing in capability, in order that we will help the demand and shield as many lives as potential. That provide has been coming on-line progressively over the previous few years as we now have actually pushed productiveness in our present manufacturing capabilities whereas we carry on new manufacturing capabilities over ’23 -‘4 and ‘5. So, we’re prepared to produce the world, and we’ll be absolutely unconstrained from 2025. As we take into consideration the expansion alternative for GARDASIL, that progress alternative is in defending extra folks within the adolescence phase.

Many international locations world wide have adolescence vaccination applications. And vaccination charges are fairly good for females. I might argue that it could possibly be higher for a vaccine that truly prevents sure cancers. We’ve got the chance to develop within the gender-neutral vaccination inhabitants. So, that is males in addition to females. We’ve got quite a few applications world wide. We have to prolong them to different international locations. However we have to see males be vaccinated on the similar fee as females. We’ve got the chance to affect the mid-adult phase. There’s information that exhibits 50% of HPV happens if you end up over the age 27. However lots of these folks have not been vaccinated. So, we have to encourage folks within the age cohort 27 to 45 to go and get this vaccination.

And in some international locations, there aren’t vaccination applications that do this. So, we are attempting to create a non-public market. That is going to take some work, some funding, and a few encouragement for folks to go and get their vaccine. I encourage these in that group right here who have not been vaccinated, go and get vaccinated. And eventually, as our provide will increase, we’ll more and more provide low- and middle-income markets world wide, which can clearly be at a lower cost level. So, the inflection of GARDASIL over time will not essentially be linear. Quantity could also be linear. However you will note a special type of trajectory from a greenback perspective.

Now in China; China, we noticed an inflection in our income actually on the finish of 2022 after we had approval for GARDASIL 9 for the total age cohort of 9 by way of 45. Previous to that, GARDASIL was accredited for the age group 16 to 26 as GARDASIL 9, and GARDASIL 4 was accredited for 9 by way of 15 and 27 by way of 45. And as you rightly know, we now have competitors in China, a bivalent competitor. What we have seen is China actually acknowledges the innovation that we’re bringing. The nine-valent could be very totally different to the two-valent and the four-valent, and that is driving progress within the feminine phase. We’re penetrating that phase, however there’s extra progress that may come from it. And on the similar time, what we now have is a male research underway in China. And certainly, the PMDA has accepted the regulatory submitting for males. And as that will get accredited, we look ahead to defending males in China and enabling additional progress available in the market.

Akash Tewari

Understood. So, one of many issues that I believe, to begin with, is basically, actually useful. I imply this concept that males ought to begin getting a vaccination as effectively. After which, there’s additionally been rising information on the discount of fee of oral cancers with GARDASIL. So, should you have been to assume, for example, as we go into the 2030s about adoption within the male inhabitants, proper, like what kind of penetration charges do you assume you may actually obtain as folks get extra educated about the advantages right here?

Caroline Litchfield

So let’s begin with america. In america, which has a fairly robust vaccination course of, a minimum of within the adolescent phase, after we’ve been launching GARDASIL and had the approval for GARDASIL in males, we now have a couple of 73% vaccination protection fee for males. I believe we’re at 78% for females. As I mentioned earlier, I might argue that must be nearer to 90% for a vaccine that does stop cancers. So, there is a option to go.

Akash Tewari

Proper.

Caroline Litchfield

But it surely provides you a sign of the chance in international locations world wide to stand up to that 70 plus % degree

Akash Tewari

Okay. Understood.

Robert Davis

And Akash.

Akash Tewari

Sure.

Robert Davis

To be clear, we count on GARDASIL to exceed 11 billion by 2030.

Akash Tewari

Proper. Not simply —

Robert Davis

You talked about 10 up entrance.

Akash Tewari

That is true. That is the factor I’ll say about Merck. A lot of the pharma corporations, they provide long-term steerage, and I do not consider them. I would not be stunned if cardiology hits 20. And that is not an overstatement really. However occurring, I believe a deal that I really feel like buyers nonetheless must sink their enamel on me included, is the Daiichi deal. I imply, that is the most important up-front fee on a biotech deal within the historical past of therapeutics. I imply, that may be a large assertion. That appears to me prefer it was additionally a really aggressive course of. $22 billion, $22 billion in milestone funds, I imply, that’s — when you consider that, you are pondering, wow, these are in HER2 like alternatives.

And to be honest, while you checked out how Daiichi analysts have been taking a look at a few of these ADCs, it was definitely not the crux of the story. And the arrogance possibly wasn’t essentially there. I hate to ask, like, decide a favourite baby. However when you consider how the road views it in your investor discussions, the place do you’re feeling like we’re simply getting this fully flawed? And is it CDH6 when it comes to increasing to colorectal? Is it the B7-H3? The place are we headed with these compounds, given we now have early information proper now?

Caroline Litchfield

So, let me begin with the deal that we expect has been a really good and financially disciplined transaction that may carry important affected person profit. The up entrance is definitely lower than $2 billion for every of three property. We’ve got entry to HER3, a CDH6, and a B7-H3. It is the up entrance, which is available in a wide range of totally different funds. Will probably be $5.5 billion, and we’ll document that as an organization within the fourth quarter this 12 months. As well as, there’s $15.5 billion of potential funds based mostly on gross sales milestones, $5.5 billion for every of the three ADCs. And we hope we pay the total $15.5 billion, as a result of if we do, we now have three extraordinarily giant merchandise for this world.

Now, as we take a look at the three totally different ADCs, first, we consider ADCs can be actually vital within the therapy of most cancers. We see them as the following wave of chemotherapy and a capability to essentially goal particular populations, particular most cancers varieties to get a greater end result, both in monotherapy or doubtlessly together with different merchandise. And we now have an enormous array of oncology merchandise that we’ll be assessing in that regard.

The HER3 compound is probably going the primary to launch. And we see that as having profit within the EGFR mutant non-small cell lung most cancers inhabitants. And we additionally see breast most cancers as a chance and different most cancers areas that we’ve not but divulged. Most likely the most important alternative as we sit right here right now is the B7-H3. We see that as a major alternative in small cell lung most cancers. A possibility could also be in monotherapy, possibly together with the PD-1. We additionally see a major alternative in prostate most cancers. Once more, possibly in monotherapy, but additionally possibly with, for instance, a PARP inhibitor or a CYP11A1, and there are different most cancers varieties there. The CDH6 is somewhat earlier in its improvement cycle, however we see that as doubtlessly having important affect in ovarian most cancers. So, we consider every certainly one of these ADCs might have multi-billion greenback alternative, and we’ll be working in collaboration with Daiichi Sankyo to essentially advance the applications fairly quickly to carry profit to sufferers and to carry income for our corporations.

Akash Tewari

Understood. Now, possibly type of stepping again, and this was a type of issues on Prometheus, (a), it is at all times getting into with the IP R&D cost and it impacts CPS, however there’s this additionally query. Simply the numerous amount of money move you are going to generate over the following 5 years. After which, how a lot of that will get allotted to share buybacks, proper? And it’s implicitly put into plenty of the road fashions. I do know when the Prometheus name occurred, you mentioned, we’ll step again a minimum of this 12 months. There was undoubtedly a way of confusion of, effectively, what does that imply, proper? Like how a lot share buybacks are you going to have? As we take into consideration ’24 and past, and simply the very robust monetary place you guys are in, what’s the fitting quantity or cadence of share buybacks we ought to be fascinated by? Is that this extra historic from what we have seen with Merck, or are we going to get to possibly one other normal right here?

Caroline Litchfield

So, I’ll elevate first to our capital allocation priorities as an organization, after which I am going to particularly reply you. Our firm believes that we’ll drive one of the best worth for our shareholders by deploying our capital into our enterprise to drive progress. So, we’ll be deploying capital into our enterprise, we’re dedicated to our dividend and we can be rising our dividend for our shareholders. We can be persevering with to enhance our pipeline with enterprise improvement. And any extra capital, we’ll return to our shareholders by means of a share buyback. As we take a look at the alternatives in entrance of us right now to put money into our enterprise and to proceed with enterprise improvement, we count on the extent of share buyback to be modest. About one billion share buyback has taken place by way of to the top of September this 12 months. I would anticipate a continued modest degree of share buyback based mostly on the alternatives to put money into Merck. That mentioned, we is not going to have money accumulate on our stability sheet. So, to the extent we do see money accumulate, we can be returning that in an applicable method.

Akash Tewari

Okay, bought it. Now, possibly simply type of the final query when it comes to BT priorities, I really feel just like the lesson we have seen in pharma is the businesses which have doubled down on what they did effectively and did not pivot to one thing else and actually leverage their industrial infrastructure are those which have actually outperformed for buyers. When you consider from a BT perspective a bolt-on acquisition or one thing possibly even bigger, what do you’re feeling like your industrial infrastructure and your individual type of scientific experience, you’re feeling like you may leverage probably the most, proper? Is there sure areas, for example ex-oncology, proper? I believe everybody is aware of on oncology, however different areas the place you’re feeling like possibly Merck’s underappreciated, the place you’re feeling like you may construct out capability and achieve extra leverage?

Caroline Litchfield

So, our BT philosophy has actually been certainly one of going and discovering one of the best science and bringing that science into Merck. We have leveraged the power that we had in immuno-oncology to then construct out immunology and we sought then the Prometheus and Pandion acquisition previous to that to allow us to then broaden the portfolio that we now have. We have been a powerhouse in cardiovascular for a few years. We have used that power to exit and get additional cardiovascular property and produce them to the corporate. I believe the strengths that Merck actually carry are our international footprint, our excellence in scientific execution and we’ll proceed to leverage that as we take a look at all totally different therapeutic areas, areas we’re in right now however possibly areas that we’re not in right now to proceed to broaden the providing that we now have and produce profit to this world and to our shareholders.

Akash Tewari

Understood, possibly final query if I can sneak it in. IRA clearly appears to emphasise uncommon illness in these orphan merchandise. They get excluded completely from negotiation. I imply you’ve got seen a number of the M&A has had a tilt there. What’s Merck’s urge for food to take a look at uncommon illness? I imply it is not an space the place you’ve got had plenty of historic presence in however might that be a chance that you’d look to construct out over time given the laws?

Caroline Litchfield

We take a look at all therapeutic areas and we’re in some uncommon ailments right now as an organization, so if the science is there and the unmet medical want is there, we’ll act as a result of it is the fitting factor for sufferers, will probably be the fitting factor for our financials, will probably be proper for our shareholders.

Akash Tewari

Understood, thanks a lot. Actually loved the dialog. Thanks all for becoming a member of us.

Caroline Litchfield

Thanks all.